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Legislative History

1939 Amendments

This important article provides an explanation of the conceptual
basis of the 1939 changes in the Social Security Act. It explains, in
terms of broad policy goals, why the program was changed in the profound
ways it was with the 1939 Amendments.

Social Security Bulletin
Volume 2 September 1939 Number 9

THE REVISED BENEFIT SCHEDULE
UNDER FEDERAL
OLD-AGE INSURANCE

Lyle L. Schmitter and Betti
C. Goldwasser

Bureau of Research and Statistics, Division of Old-Age
Benefits Research

THE REVISION of the benefit provisions of the Federal old-age insurance
system and the introduction of survivors insurance are major achievements
of the 1939 amendments to the Social Security Act, which became law on
August 10, after many months of deliberation in Congress. These changes
advance to January 1, 1940, the date at which monthly benefits first become
payable, increase the average amounts payable in the early years of the
system and the number of older workers who can qualify in this period,
and institute monthly benefits for certain dependents and survivors of
workers who have contributed to the system. In effect, at least a minimum
old-age income is provided for retired insured workers and their families,
and protection is afforded to certain survivors of insured workers.

The revision of the benefit formula reflects the change in the emphasis
of the program. The original provisions offered primarily a plan for systematic
savings for old age. The amendments, on the other hand, are designed to
provide a minimum subsistence income for the retired worker and his dependents
or for certain of his survivors, relating the amount of the benefit to
his family responsibilities and, roughly, to the level of his former earnings
as well as to the extent of his participation in the system. The primary
monthly benefit, payable to a qualified worker at 65 or after, is based
on his average monthly wage (as defined subsequently) according to the
following formula: (1) a basic amount of 40 percent of the first $50 of
the average monthly wage, plus 10 percent of the amount by which that
average exceeds $50 and does not exceed $250 and (2) 1 percent of the
amount calculated under (1) multiplied by the number of years in which
the worker has received $200 or more in wages from covered employment.
The minimum primary benefit is set at $10.

A supplementary benefit of one-half the primary benefit is provided,
under specified circumstances, for aged wives and dependent children of
beneficiaries; the other benefits outlined in table 1, which are provided
for certain survivors of covered workers who die either before or after
they have retired, will be discussed in a subsequent article. With respect
to the wages of any one worker, the maximum total monthly amount payable
to him and his dependents or to his survivors is not more than twice the
primary benefit, 80 percent of the average monthly wage, or $85, whichever
is the least. These requirements, however, may not be used to reduce such
a combined amount to less than $20.

Objectives of Old-Age Insurance

The report of the President's Committee on Economic Security in 1935
recognized the need for covering a wide range of risks, including those
arising from old-age, invalidity, and death, and recommended provisions
for both compulsory and voluntary insurance. The plan proposed by the
Committee related benefits to average wages, in an attempt to provide
retirement benefits bearing some relation to customary wages in covered
employment. These recommendations of the Committee were not, however,
enacted into the 1935 Social Security Act. The pressure for a self sustaining
system induced Congress to discard the idea of insurance against a wide
range of social risks in favor of a banking or money-back system of retirement
annuities. The net result of the change was to hold down benefit payments
during the early years and to provide for the accumulation of a large
reserve fund.

Title II of the 1935 act provided for the payment of benefits to workers
who reached the age of 65 and who met certain other qualifying requirements
based on the extent of their covered employment and the amount of wages
they had received in such employment. Since workers were to contribute
on the basis of their wages in covered employment and their employers
were taxed a like percentage of pay rolls, benefits were related by imputation
to contributions or taxes, although the right to benefits was not dependent
on the actual amount of payments made. This system was in large part a
contributory-savings plan, in that payments were to be made during the
working life of employees to provide a means of support during later years
when they became unable to earn a livelihood through regular employment.

Table 1. Old-age
insurance provisions enacted in 1935 and in the 1939 amendments to
the Social Security Act

Provision

1935 Act

1939 Amendments

Monthly benefits first payable

January 1942

January 1940.

Age limits for persons qualifying for monthly benefits

Must have attained age 65 at sometime after Jan. 1, 1941.

Age 65 or over for all old-age benefits (primary annuitant, wife,
widow, or dependent parents). Under 16, or 18 if still in school,
for dependent children. No age limits for widows with dependent children.

Contribution rates of workers and of employers (percentage of pay
rolls)

Nearly the same except that employment after age 65, employment
in national banks, and some maritime employment are covered.

Total monthly benefits payable with respect to person's wages:

Minimum

$10

$10 for primary annuitant; $l5 for primary annuitant and 1 dependent
(aged wife or dependent child); $20 for annuitant and 2 or more dependants.
$10 for widow aged 65 or over without dependent child.
$12.50 for widow and 1 dependent child; $17.60 for widow and 2 dependant
children; $20 for widow and 3 or more dependent children.
If no widow survives, $10 for 1 or 2 dependent children; $16 for 3,
$20 for 4 or more.
$10 for 1 or both wholly dependent aged parents.

Maximum

$85

$85, or twice primary benefit, or 80 percent of legally defined
average monthly wage, whichever is least. (These maximums may not
reduce total of benefits below $20.)

Formula for computing primary monthly benefit

1/2 of 1 percent of first $3,000 total wages,{1} plus 1/12 of l
percent of next $42,000, plus 1/24 of 1 percent of next $84,000.

a. 40 percent of first $50 of legally defined average monthly wage
plus 10 percent of average monthly wage in excess of $50 but not over
$250 plus
b. 1 percent of amount computed under (a) for each year in which wages
{2} of $200 were received.

Supplementary benefits:
Wife aged 65
Dependent child

None
None

50 percent of primary benefit.
50 percent of primary benefit.

Survivors and lump-sum death payments:
1. Lump-sum death payments

Amount equal to 3.5 percent of total wages less monthly benefits
received.

Amount equal to 6 times the primary benefit, provided that the deceased
worker was fully or currently insured and left no widow, child, or
parent who would, on filing an application in the month of his death,
be entitled to monthly survivors benefit for such month.

Lump-sum payment amounting to 3.5 percent
of total credited wages payable at age 65.

None.

Eligibility requirements:

(a) Fully insured

$2,000 cumulative wages received; 1 day of covered employment in
each of 5 years after 1938 and before age 65.

Wages of at least $50 paid in each of 40 quarters or in 1/2 as many
quarters as the number elapsing after 1936 or after attainment of
age 21, whichever is later, and before attainment of age 65 or death,
whichever is earlier. Minimum, 6 quarters.

(b) Currently insured

None

Wages of at least $50 paid for each of at least 6 out of the 12
quarters immediately preceding the quarter in which death occurred.

Monthly benefit not payable

For months when in "regular employment" for which wages
have been paid.

For months in which:
(a) Services were rendered for wages of $15 or more:
(b) Widow under age 65 has no dependent child is her care;
(c) Children between 16 and 18 are not regularly attending school.

{1} "Wages" is used in this
column as referred to in sec. 202 (a) (1) and defined in sec. 210
of the Social Security Act of 1935.

{2} "Wages" is used throughout this column as defined in
sec. 209 (a) of the Social Security Act as amended in 1939.

Within the relatively small part of the population which is able to make
systematic and adequate savings, any person can embark individually on
a plan of saving for his own old age. The old age risk matures roughly
at the same time for all persons and thus is fairly predictable. However,
no one individual can anticipate how long he will live after reaching
old age, and, consequently, not even these fortunate few can predict how
large a fund an individual will need for support after he no longer can
earn, even though he knows how much he will need each month. This phase
of the problem can be solved when a large group of individuals cooperate
in providing for old age.

The group can predict quite satisfactorily, on the basis of mortality
experience, the amount of funds required to meet specified payments throughout
life to all who live to be old. In private insurance practice the need
of protection against this type of risk has long been recognized. An annuity
distributes funds or reserves among persons over a specified age. Periodic
payments on annuity contracts are usually made in proportion to the total
amount of savings or reserves previously accumulated to each policyholder's
credit. The insurance element in annuities results in the redistribution
of the saving from those who die early for the benefit of those who live
beyond the average life expectancy. The 1935 provisions of the Social
Security Act established machinery for such cooperative pooling of the
old-age risk by American workers. This pooling and sharing of risk is
the essence of insurance, and thus the system, from its beginning, has
contained an important insurance feature as well as a savings plan.

The old-age benefits plan enacted in 1935 failed, however, to give direct
protection to the wives and other dependents of insured workers. Moreover,
it was so designed that it was slow in getting under way. Since benefits
were based on accumulated wages, reasonably large benefits were not possible
for most workers until the system had been in operation many years. Despite
the formula, which weighted more heavily the first $3,000 of total taxable
wages, the amounts payable to many workers during the early years would
have been an inadequate substitute for the loss of income upon retirement.
In many States the average monthly benefits payable during the first few
years would have been below the average current payments for old-age assistance.

The relatively low levels of early benefits led to various proposals
for an upward adjustment. At the same time the possibility of enhancing
benefits by paying supplementary amounts for dependent wives and children
and by relating benefits to average wages led to a wider view of the scope
of social security. To afford reasonably adequate protection to more of
the people, social insurance must take into account not only the need
for protection in old age but also other widespread risks of long-continued
loss of income, earlier recognized by the Committee on Economic Security
but not reflected in the 1935 law.

One respect in which the original Social Security Act failed to meet
the security needs of the worker adequately was its treatment of the hazard
of premature death. Protection of dependents against death of the wage
earner was afforded only incidentally under the provisions for old age
in title II as written in 1935, and consequently the insurance it provided
against loss of income at death was inadequate. If a worker died before
reaching age 65, his heirs or estate received 3.5 percent of his aggregate
wages in covered employment. Under the 1935 legislation lump-sum death
payments were also to be made in and after 1942 to survivors of beneficiaries
who had received some monthly benefits but, in all, less than 3.5 percent
of the amount of their aggregate taxable wages. In these cases the payment
was to have been the difference between these two sums.

Since these amounts were based on accumulated wages, lump-sum death payments
in the early years ordinarily could amount to very little, and even after
the plan had been in operation for many years the average wage earner
would have built up a death payment of not more than $1,000 or $1,500.
A lump-sum payment may be dissipated quickly, and even the larger amounts
would ordinarily have been inadequate to replace the income needed by
the family of a deceased worker who left young children or aged dependents.
Furthermore, the size of the death payment in the original title II was,
in many cases, in inverse ratio to presumptive need; that is, it amounted
to very little for the young worker who had little time to build up a
large amount in credited wages but would be likely to have a wife and
young children dependent on him and, on the other hand, was larger for
the worker who had been in the system for a long time but whose children
would probably have become self-supporting.

This rather illogical treatment of the risk of premature death resulted
from the emphasis on the savings feature contained in the 1935 act in
that the lump-sum payments were regarded more as a method of ensuring
that each person or his estate should receive somewhat more than he had
paid into the system than as a method of protecting survivors. A more
logical and systematic plan is provided in the amended act by resorting
in full measure to the principles of social insurance. Just as a group
of individuals can pool the risk of old age and balance the longevity
of some individuals against the shorter lifetimes of others, so protection
of dependents against loss of income by reason of the breadwinner's death
can be attained by pooling the risk among a large group of individuals.
By means of past mortality experience it can be predicted quite closely
what percentage of the group will die in each year. Therefore, the cost
of providing benefits for dependent survivors of workers dying prematurely
can be forecast within satisfactory limits for practical purposes.

In private insurance practice such protection is provided by term insurance
policies, under which those who live contribute through their premium
payments to the dependents of those who die. The great majority of policyholders
are "lucky" in that they and their families do not get any return
on their money other than the protection and a sense of security from
being insured, while the survivors of those who are unfortunate and die
receive amounts unrelated to the length of time the individual policy
was carried or to the total amount of premiums paid. In this respect,
term insurance payments differ from payments on annuity contracts, since
the latter are closely related to the total amount of savings accumulated
in each policyholder's account. By means of the Social Security Act amendments,
some of the principles of term insurance are used to pool the risk of
death which deprives a worker's dependents of their customary means of
support.

Under the amended plan the protection given the worker combines term
insurance before age 65 with an annuity after age 65. In all but exceptional
cases the individual, by means of the dual protection, gets either in
protection or in benefits at least the value of his own contributions.
However, when an insured individual dies before receiving in benefits
as much as he contributed and leaves no survivors entitled to benefits,
his estate will not get his money back. In most cases the benefits paid
with respect to an individual's wages will at least equal the amount of
his contributions, while persons who retire in the early years will receive
much more than the amount of their contributions. For at least the next
40 years every insured worker will have more over-all protection than
he could purchase from a private insurance company with the amount of
his contributions.{1} Such protection does not express a quixotic generosity
on the part of the Government but recognizes the social objective of the
system and the compulsory nature of this as of most social insurance by
assuring the public of a "good buy" in return for their contributions.

{1} Even in the extreme case of a person without qualified dependents
who earns $250 monthly in covered employment for the next 45 years, an
annuity purchased privately with the amount of his contributions would
be only 30 cents per month more than the $58 per month he would receive
under the 1939 amendments. Cf. U. S. Senate, Committee on Finance, Social
Security Act Amendments of 1939, Report No. 734, pp. 15-16.

In recommending earlier payments, larger payments in the early years,
and larger payments to beneficiaries with dependents or to the survivors
of covered workers, the Social Security Advisory Council and the Social
Security Board placed more emphasis on the insurance features of the act
and correspondingly less on the savings or "money-back" approach.
As a result of the shift, the present emphasis is to establish a system
of social security which will partially compensate qualified workers or
their families for the continuing loss of income occasioned by death or
retirement. As far as possible the attempt has been made to measure this
loss by the level of wages for some time before the loss took place. The
change in emphasis from savings to insurance has resulted in a shift from
total wages to average wages as a measure of benefits.

The Average Wage

Almost any mechanism devised for calculating benefits under a contributory
system represents a balance between two conflicting ideals--to give full
weight to the length of service and total contributions and to provide
adequate protection regardless of term of service. The average-wage formula
in the amendments relates benefits not only to presumptive need, as indicated
by the level of customary earnings, but also to the relative amount of
time spent in covered employment. The average monthly wage is computed
by dividing total wages received in covered employment before the quarter
in which the wage earner died or became entitled to receive a primary
benefit, by 3 times the number of quarters (i. e., the number of months)
elapsing after 1936, up to but not including the quarter in which the
individual becomes entitled to receive primary insurance benefits or dies,
excluding any quarter prior to the quarter in which he attained the age
of 22 during which he received less than $50 of wages and any quarter,
after the quarter in which he attained age 65, occurring prior to 1939.
{2}

{2} Wages received in covered employment in quarters before age 22 are
included in the numerator of the fraction, but the number of quarters
in the denominator excludes those in which the individual was paid less
than $50. Remuneration for quarters after age 65, occurring in years prior
to 1939, is excluded from the numerator because it is not "remuneration
for employment,'' since employment is defined as "any service . .
. except service by "individual after he attained the age of 65 if
performed prior to Jan. 1, 1939." These same quarters are excluded
from the denominator by express provision.

As a result of dividing total wages in covered employment by the entire
length of time (with the exceptions noted above) in which such wages could
have been received, the average wage of individuals who stay in the system
for only a part of the time in which they could have participated is less
than it would be if they were in covered employment during the whole potential
span. In effect, a weighted average wage is provided which automatically
eliminates the emphasis given to the earnings of very short-time employees
without lessening the importance of the earnings of low paid employees
who have been covered for long periods. Moreover, under this formula the
same primary benefit will be paid to any two individuals who become eligible
for benefits in the same quarter, have earned and contributed the same
amount over the same total number of quarters, and have the same number
of years of coverage, whether early or late in the history of the system.

By basing benefits on an average measured over the quarters since 1936,
it is possible to start benefit payments in 1940 with reasonably adequate
benefits even in the early years. As the system matures, however, the
period will be measured from the time at which it is assumed that most
individuals would have entered employment, i. e., age 22, except for those
whose wage records evidence earlier quarters with wages of $50 or more
in covered employment. The quarters before age 22 in which the worker
receives less than $50 were not included, since for many of these younger
workers employment is likely to be either incidental or little more than
apprenticeship. Inclusion of these low quarters would tend to lower the
average wage calculated for the entire period of employment. To mitigate
this effect, age 22 was set as the lower limit in calculating length of
service but not total wages.

In contrast to the provisions of the 1935 act, wages received after age
65 are credited toward benefits by the amendments, beginning with the
calendar year 1939, and the average wage for individuals who work after
they attain the age of 65 is calculated with the additional earnings and
the additional quarters of coverage (as defined below) included. This
provision has the advantage of enabling older workers to qualify or to
increase the amount of their benefits even though they may have passed
the former age limit of 65. For an individual who is entitled to benefits
at age 65 but continues to work after that age, the new provision may
work some disadvantage, since his average wage may decrease if his wage
level falls off in old age and he does not make application for a benefit.
This may be offset, however, by the increment for the added years of coverage.

It should be emphasized that for the worker without qualified dependents
who has been covered throughout life no attempt is made to provide as
generous a benefit as that provided under the original act. After the
system has been in operation for some years, benefits for such annuitants
will be lower than those they would have received under the 1935 provisions.
Higher benefits are provided for persons who would not have had an opportunity
to accumulate wages which would have entitled them, under the 1935 total-wage
formula, to benefits adequate for them or their dependents.

As the system matures and the span of time lengthens through which an
individual could have participated in it, a worker's average wage and
consequently the amount of his benefit under the new formula, will be
increasingly a reflection of the length of continuity of his covered employment.
For example, if a worker reaches age 65 in January 1943, after receiving
$100 a month in covered employment during the 6 previous years, his average
monthly wage is $7,200/24 x 3 or $100. A man who dies later, let us say
in January 1977, after 40 years of continuous covered employment since
age 21 at the same rate of earnings, would have the same average of $100.
On the other hand, if a worker reaches age 65 in January 1977, after 40
years of potential coverage, and has had in those years only 20 years
of covered employment and $24,000 in wages, the formula for the average
wage would take into account the 160 elapsed quarters and thus would be
$24,000/160 x 3 or $50, and the monthly benefit would, therefore, be lower
than in the previous cases. From these illustrations it should be obvious
that the adequacy of benefits in the future depends largely upon the question
of coverage. As long as coverage does not extend to all gainful occupations,
workers who are excluded from the system can receive no benefits and those
who have only incidental covered employment will either fail to qualify
or will receive relatively low monthly benefits.

The use of an average-earnings formula leads to the question whether
a man who retires in the first few years of the system should receive
the same benefit as the man with the same average wage who retires much
later. For the former, the average wage is calculated only over the last
few years of his working life; for the latter, over a full working lifetime.
The former may have contributed for only a year and a half; the latter
for 40 years. If the formula for calculating benefits were simply a percentage
of average earnings, the man who, by 1980, had paid contributions over
40 years would receive a benefit no larger than that granted to the man
retiring in 1940 with the same average wages.

While it is socially desirable to liberalize qualifications for benefits
in the early years, when older workers have had only a brief opportunity
to participate in the system, there should also be some reward for continued
contributions, and a safeguarding to that extent of the savings principle.
The amended plan aims at this result by adding to the amount calculated
from the average wage, an increment of 1 percent of the basic benefit
for each year in which the individual received wages of $200 or more in
covered employment. The result is to provide for an increase in benefits
for workers now young, by reason of their subsequent years of service.
An automatic adjustment is provided for periods in which the individual
is not in covered employment, since the monthly average wage is obtained
by dividing the aggregate of wages from covered employment by a figure
representing the number of months in the whole period (with the specified
exceptions) in which he might have been in covered employment. The monthly
average is thus lowered automatically by periods of non-coverage. By the
additional credit for years of service the new formula tends toward a
crude proportionality between benefits and contributions of those who
retire immediately and those who retire in the future.

Since the benefit formula is based on the average monthly wage, it can
be used also for the "term insurance" against the current risk
of death. An average wage basis related to earnings preceding loss of
income seems the logical foundation for survivors benefits, just as it
is for old-age benefits, if adequate benefits are to be paid in the early
years of a social insurance system. Moreover, it is essential at all times
that survivors benefits be based on average rather than aggregate wages
if protection is to be given to the dependents of younger workers who
have had relatively little time to build up a cumulative amount, yet are
likely to have young dependents.

Eligibility

The 1935 legislation specified that a worker was qualified for monthly
benefits if he was aged 65 or more, had received an aggregate of $2,000
or more in wages in covered employment after 1936 and before he was 65,
including wages for at least 1 day in each of 5 calendar years, and was
no longer in "regular employment" for which he received wages.
Since the Board and Advisory Council had both recommended earlier payments,
it obviously became necessary to liberalize the eligibility requirements.
By the beginning of 1940, wage records will be available for only 3 years,
and it is quite probable that many of the workers in covered employments
will not have received total wages of $2,000 by that date. The necessity
of lowering the entrance requirements was complicated by the fact that
benefits were being increased in relation to the amount of contributions
paid and that such a large bonus, if continued in the future, would invite
fraud and collusion. The problem was to devise a formula which would not
exclude workers who are approaching or have reached retirement age at
the present time, yet would ensure that those who qualify for benefits
in future years will have participated substantially in the system in
terms of the length of their covered employment and the amount of their
contributions. It was also necessary to put the eligibility requirements
upon a quarterly basis in conformity with the formula for average wages.
Both of these conditions were finally met by the requirement that the
individual to be insured must have received at least a specified amount
of wages in each of approximately one-half the possible number of quarters.

The question then arose as to what amount of wages should constitute
a quarter of coverage. Here again it becomes obvious that the amount should
be large enough to exclude purely incidental or part-time wages. No matter
what limit is set, the decision is bound to be arbitrary and to exclude
quarters for some bona fide full-time employees. The definition of a quarter
of coverage as a calendar quarter in which $50 of wages, as defined by
law, have been received was finally incorporated in the law as constituting
a reasonable minimum.

In the 1935 act, a worker must have received wages for covered employment
in a day or more in each of 5 calendar years. Under the amendments, a
worker who qualifies for a retirement benefit must fulfill one of the
two following requirements, either of which gives him the "fully
insured" status which entitles him and any of his specified dependents
or survivors to any of the benefits provided under the system: (1) he
must have had at least 40 quarters of coverage, in which case be is not
only fully but also permanently insured, regardless of further covered
employment; or (2) he must have at least half as many quarters of coverage
as there are calendar quarters after the year 1936 or after the quarter
in which he reached the age of 21, whichever is the later, and before
the quarter in which he reached age 65 or died, whichever occurred first,
and he must have had at least 6 quarters of coverage. When the number
of elapsed quarters is an odd number, it is reduced by one. Quarters before
age 21 and, beginning with 1939, quarters in or after which age 65 is
attained in which an individual received at least the requisite $50 in
covered employment may be counted toward the number required for eligibility
for benefits. When an individual has received $3,000 or more in wages
in any calendar year, each quarter of such year following the first quarter
of coverage shall be counted as a quarter of coverage, up to but excluding
any quarter of the year in which he dies or becomes entitled to a primary
benefit.

As a result of these requirements, the worker who has reached age 65
at any time prior to July 1, 1940, has fulfilled the eligibility requirements
for a monthly benefit if there are 6 quarters in which he has received
$50 or more in covered employment, whether before age 65 or, in and after
1939, subsequent to that age. For workers who attain age 65 in future
years, the required number of quarters will rise progressively as the
period lengthens over which they might have been engaged in covered employment,
until they have attained the 40 quarters which entitle them to permanent
coverage. It should be noted also that in both the early and later years
of the system a worker who dies young, but after he has at least 6 quarters
of coverage and at least half of the potential number as defined above,
is fully insured.

The amendments define as "currently insured" an individual who
has been paid wages of not less than $50 for each of 6 of the 12 calendar
quarters immediately preceding the quarter in which his death occurs.
The widow of a currently insured worker who is caring for his dependent
child or children and the dependent children of such a deceased worker
are entitled, under specified circumstances, to monthly benefits.

Benefit Patterns

At first glance, the larger percentages applied in the revised formula
might seem to indicate much larger benefits than those of the original
act, but it must be remembered that the computation is based on an average
wage rather than on an aggregate. In addition, the primary benefit is
reckoned on only $250 of the average monthly wage. The primary benefit
therefore cannot exceed $40 plus the 1-percent addition for each year
of coverage. There will be some cases of persons who have received more
than $3,000 in taxable wages in a year or years before 1940, by reason
of work for more than one employer during the year, since the original
legislation provided that as much as $3,000 a year in taxable wages from
each employer might be counted. For some of these individuals, the average
wage from covered employment may be more than $250, but in computing benefits
only $250 can be counted.

A supplementary benefit of one-half the primary benefit is provided for
the wife of a primary annuitant if she is aged 65 or over and is not herself
entitled to a primary benefit equal to or exceeding that amount. Any smaller
primary benefit to which the wife may be entitled reduces the amount payable
to her with respect to her husband's wages by an amount equal to her primary
benefit. A similar supplement of one-half the primary benefit is also
provided for a dependent child until age 18. The child's benefit may be
withheld from children over 16 if they fail to attend school regularly
and the Social Security Board finds it was feasible for them to attend.
The maximum combined benefits with respect to an individual's wages may
not be more than double the primary insurance benefit, 80 percent of the
average wage, or $85, whichever is the least. However, these maximum provisions
may not reduce the combined amount below $20. The minimum amount of total
benefits payable with respect to an individual's wages is set at $10.
Consequently, the minimum combined benefit for a worker with one dependent
is $15, and with two dependents $20. The benefits payable to wives, widows,
and children of insured workers, as well as the primary old-age insurance
benefits, differ from public-assistance payments in that they are provided
to all qualified persons irrespective of any other resources they may
have.

Under the 1935 legislation deductions were to be made from the monthly
benefits payable to a qualified worker if he received wages for any month
in any part of which he rendered services in "regular employment."
Under the amendments a more explicit provision is made with respect to
employment, in that deductions equal to the month's benefit (including
dependent's allowances) are to be made from any payment to which an individual
is entitled for any month in which he or she or the person upon whose
wages a wife's or child's benefit is payable rendered services in covered
employment for wages of $15 or more. A deduction equal to the child's
benefit is made for any month in which a child over 16 years of age failed
to attend school regularly if the Board finds that such attendance was
feasible. When the Board is informed that more than one of these or other
events specified in the amendments occurs in any month which would occasion
deductions equal to a benefit for that month, only an amount equal to
the benefit is to be deducted. Deductions will be made also from any benefit
payable with respect to an individual's wages equaling the amount of any
lump-sum payment made to that individual under provisions of the act in
effect prior to the approval of the amendments. Deductions will be made
in amounts and at times determined by the Board.

Comparison of the provisions of the revised plan with those of the 1935
act are best shown by specific examples, which reveal the more liberal
benefits in the early years and the additional protection accorded to
dependents. Such examples are given in table 2, which utilizes data presented
by the Chairman of the Social Security Board at hearings before the Ways
and Means Committee of the House of Representatives to illustrate benefit
patterns under the original provisions and the 1939 amendments for individuals
and for persons with dependent wives or children.

Chart II. Monthly
old-age benefits payable under the 1935 provisions of the Social
Security Act and under the 1939 amendments {1} to workers with specified
average monthly wages on attaining age 65, 1940-1980

{1} It is assumed, with respect to the amendments, that an individual
earns at least $200 in each year in order to be eligible to receive
the 1-percent increment. If this were not the case, the benefit
would be somewhat lower.

Two facts are immediately apparent:

1. The new schedule provides much more liberal benefits to all persons
who qualify for benefits in the early years. This, as has been pointed
out, was an important reason for changing the benefit formula. The average
wage base of the revised benefit formula makes possible the immediate
payment of significantly larger benefits, which are related to earnings
levels and presumptive needs rather than to total earnings and years worked.

2. As the system matures, benefits for annuitants without qualified dependents
will be smaller than the benefits such persons would have received under
the 1935 act. This change results from the shift in emphasis in the program
from the individual to the family. Because it is recognized that the principle
of equity must be safeguarded, it may be noted here that, for many years
to come, most annuitants, whether or not they have dependents who qualify
for benefits, get much more protection than they could have purchased
for the amount of their contributions from a private insurance company.

Chart I shows the relation of benefits for annuitants,
with and without qualified dependents, at different wage levels under
the revised plan as compared with benefits payable to all annuitants under
the 1935 act. It is assumed that the employee works steadily in covered
employment for the number of years shown. It is obvious that the new plan
provides a schedule of benefit payments which is more sensitive to the
presumptive needs of the beneficiary, and is more liberal with respect
to employees retiring in the early years and to employees with low average
earnings. Although the schedules for all the possible years coverage are
not plotted on this chart, it can be shown that benefits for an individual
under the new plan are more liberal than under the old in the early years
of the system, and less liberal thereafter. For an employee without qualified
dependents whose average wage is $50 a month, the monthly benefit would
be higher under the new plan than under the old if he retired at any time
before 1961, i. e., before 25 years of coverage were completed; for such
a worker whose average wage is $100 monthly, the new plan provides more
generous benefits for the first 16 years. The period over which the new
plan is the more advantageous is lowered as the average monthly wages
are increased; this is a logical consequence of the dual emphasis on the
early years of the system and on the first $50 of average monthly wages.

Chart II shows benefits under both the original
and the amended provisions for annuitants with and without qualified dependents
and with specified wage averages who reach age 65 in different years.
In part A of chart II it is assumed that the employee receives $1,200
a year and is in covered employment every year after 1936; part B assumes
$3,000 of wages each year and covered employment in each year subsequent
to 1936. The differences in the formulas are at once apparent: (1) the
more generous payments in the early years provided by the new plan, and
(2) the "bend" in the formula on aggregate wages over $45,000
under the old plan.

The revised pattern of old-age benefits is an extension and liberalization
of the Federal old age insurance program. It has been designed to expand
the system and to liberalize benefits paid to those who retire in the
near future. More significant, its provisions for dependents and dependent
survivors, with the emphasis on the family unit, is a progressive step
toward a rounded program of social insurance within the structure of a
contributory system.